There are a myriad of U.S. reporting issues raised by foreign subsidiaries of U.S. companies engaging in cloud computing. This is primarily due to the fact that the development of the tax law generally lags behind trends in the business world and, therefore, old principles must be applied to new factual scenarios.

If the foreign subsidiary is providing the cloud computing and earning income therefrom, issues such as the character and source of income, whether the foreign subsidiary is engaged in a U.S. trade or business, the effect of any applicable treaty and whether the foreign subsidiary is a Controlled Foreign Corporation (CFC) will impact the U.S. reporting obligations of the foreign subsidiary and its U.S. parent.